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FCC Will Finally Act on Cable MSO Monopoly

According to Kagan Research, starting on July 1, a Federal Communications Commission (FCC) mandate will now ban cable companies from forcing their subscribers to use proprietary integrated set-top boxes, with few exceptions.

This change requires cable set-top boxes to employ a removable and universal 'CableCARD' to decode signals. The modular approach aims to foster a 'digital cable-ready' landscape by allowing cable subscribers to use open standard solutions from third parties of their choice.

Three weeks ago, the FCC delivered a mixed bag of decisions for cable operators who were seeking waivers, leaving the cable MSOs with little choice but to focus on implementation, notes Kagan Research.

Cable companies argue that the mandate will simply drive up costs because one-piece integrated set-tops are less expensive, more secure and more reliable. Ironically, it's a similar argument that the Bell System used, before that long-time monopoly over exclusive telephone set usage was dissolved by an act of law.

Finally, in an unintended ripple effect, the exempted satellite pay-TV industry may have been handed a small cost advantage over cable. Satellite TV is not included in the mandate, on reasoning its set-tops are portable when subscribers change residence -- which is typically not the case when cable subscribers move beyond the reach of their current cable system.

Kagan Research estimates an external CableCARD adds $40-$80 to the cost of each set-top box, but it's not clear where this was assessed. Kagan also estimates that just under half of all U.S. cable TV subscribers used digital equipment at the end of 2006; the remaining have analog cable services that eventually will be replaced.

Given the FCC's prior experience in the telco sector, it puzzles me that it has taken this long for the FCC to act. They stopped regulating the U.S. cable TV rates several years ago, and consumer prices for pay-TV service have skyrocketed every year -- without fail -- since that time.

Apparently ignorance is bliss, since most people don't know that American consumers who subscribe to pay-TV typically pay more, and receive less options, than their peer group in both the European and Asia-Pacific markets.

Also, as new IPTV services are being deployed by telcos with proprietary set-top boxes, it's not clear to me how the FCC mandate will effect these very integrated and closed pay-TV systems.

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